Fastenal Falls as Soft Pricing Overshadows Results

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00:00It does seem like analysts were noting that the pricing during the quarter was weaker than expected

00:05and marks the second straight quarter of softer pricing. And maybe that's why we're seeing the

00:09stock down. What do you want to say to investors? Well, part of the reason our stock's down is it's

00:15price to perfection. If you look at what it's done, you know, year to date and where the

00:19multiple has gone. But, you know, we had we had a really good quarter. We had we had a double

00:27digit quarter. We hadn't seen that for a couple of years. Double digit growth. Sorry. And pleased

00:34with the outcome. One of the one of the challenges we had this year was there's a lot of fluidity

00:41around tariffs and what it means for pricing. And we will raise price to address costs in

00:48our customer supply chain. We we really don't want to raise more than that because we believe

00:54it impairs our ability to grow as fast as we'd like. And, you know, coming into the quarter,

01:00we estimated, you know, X for for impact of pricing came in a little bit less. We lowered our number for

01:06the fourth quarter. But the most important aspect is on a price cost basis, we are neutral. And that's

01:13what we aspire to be. We'd rather just grow. And Dan, to your point, Fastenal, even with the pullback

01:19today, returning 22 percent year to date. So outperforming the S&P 500 and comparable stocks

01:25in the industrial space. But just one more question on pricing in terms of expectations. Would you want

01:32to raise pricing? Like, do you get the sense that consumers and customers would push back just given

01:37how you've been shifting into bigger customers spending much more money? Yeah, customers always

01:43push back on pricing. It doesn't matter the size customer. We will. We are having conversations

01:49with our customer. We will be doing some price increases in Q4. I suspect we'll be doing some

01:55price increases as we move into 2026. But again, our first discussion with the customer,

02:01they understand it. They're willing to move on price. Our first discussion is always what are

02:08alternatives to this product that maybe doesn't mean we have to raise your prices 5 percent. Maybe

02:13it means it only has to be two. And we'd rather go to two because that's what a supply chain partner

02:19does. Well, Dan, how do tariffs fit into this? Just given that, according to analysts across the

02:24street, when we look at certain industries, now is when we're going to see tariffs showing up in the

02:30third quarter in guidance as it relates to 2026. What are you seeing and how are you kind of

02:35attacking or addressing any pressures from tariffs? Yeah. So for us, tariffs have been in the equation

02:42since the early part of the second quarter, a little bit of first quarter. I think in

02:47the individual that handles pricing, historically, he'll provide us an update once a month. He'd gotten

02:54to the point where he was not only providing us updates. He was up to video number 14 as of July

03:00that he was serving out to the field, giving them guidance into what we were seeing in our supply

03:06chain. And so we've been adding price as we've gone through the year. And these have been discussions

03:12with customers. And I hope that answers your question. No, I think it does. But I think the big

03:18thing is, are you mitigating the impact of tariffs? Are you shifting your supply chain? Is the expectation

03:24that you can have some kind of knock on effect as it relates to pricing? If we do continue to see

03:29threats from the president going after countries like China or others, we are going to talk to

03:34one of the members of Levi's management team, and they called out that they had to dial up their

03:39expectations for the impact of tariffs from other countries. So how is that impacting when you look

03:44at your supply chain and when you look at the potential for pricing impacts in 2026?

03:48We've been moving supply chain around the planet in earnest since 2017-2018 timeframe.

03:57As our name would imply, we sell a lot of fasters. And most of the fasters in North America come from

04:05either mainland China or Taiwan. And the automotive industry took the production there back in the 50s

04:12and 60s, actually took it to Japan and South Korea, and then migrated from there. If I look at our

04:19resources, we now have a sourcing team in Shanghai, but we have a sourcing team in Bangkok. We have a

04:26sourcing team in Northern India. And we have worked to diversify our supplier base around the planet,

04:33and a little bit more in North America, but really around the planet. So to have diversity in supply,

04:39so you're not caught off guard by some price change or a tariff change. In addition to that,

04:46we've taken supply chains coming into North America, which traditionally came in through the

04:51West Coast of the United States, and then we would redistribute from there. We have moved supply chains

04:56so they're bringing product directly into the West Coast of Canada, or the West Coast of Mexico,

05:01because those two countries represent about 14% of our revenue. Now, you bypass the tariff. However,

05:09it's more expensive to break shipments down over in Asia and bring them in, but it's a lot less than a tariff.

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